Transcripts

Bernanke & Bush Give Wall Street A Boost

SUSIE GHARIB: A stock market rally on Wall Street today courtesy of President Bush and Ben Bernanke. The Dow jumped 119 points and the NASDAQ rose 31. Speaking at a gathering of central bankers and top economists in Jackson Hole, Wyoming, Federal Reserve Chairman Bernanke pledged to act as needed to keep financial markets stable. Many investors interpreted the remarks as a sure sign that the Fed will cut interest rates at its September policy meeting. Scott Gurvey reports.

SCOTT GURVEY, NIGHTLY BUSINESS REPORT CORRESPONDENT: It was an unusually detailed speech for a chairman of the Federal Reserve. Ben Bernanke spelling out clearly the challenges the central bank faces due to the mortgage melt-down and disruption of the credit markets. Bernanke said, quote, developments in financial markets can have broad economic effects and he promised the Fed, will act as needed to limit the adverse effects on the broader economy, end quote. But while traders assumed his statement virtually guarantees a cut in the Fed funds rate by the next open market committee meeting on September 18, the chairman specifically warned it is not the responsibility of the Federal Reserve to protect lenders and investors from the consequences of their financial decisions. Economist Drew Matus of Lehman Brothers says that means the Fed will focus on the economy in making its decision.

DREW MATUS, SR. MARKET ECONOMIST, LEHMAN BROTHERS: The beauty of the speech is that there are no implications for Fed monetary policy. Bernanke kept all the Fed's options open. So essentially he warned against moral hazard (ph). He then talked about the concerns that the Fed had about the real economy and the prospects for financial market turbulence feeding into the real economy. And by combining those two he essentially said don't look for anything before the next meeting and at the next meeting we'll have to see what's happening then.

GURVEY: The Commerce Department today reported that what is known to be the Fed's favorite inflation indicator showed core prices up 1.9 percent for the year ending in July. That is within the Fed's inflation goals and should make it easier to cut rates. Some believe the Fed's reluctance to cut is in part due to the fear of seeming to bow to Wall Street pressure. But economist Bob Brusca of Fact and Opinion Economics says in this case, the interests of Wall Street and Main Street may be the same.

ROBERT BRUSCA, CHIEF ECONOMIST, FACT AND OPINION ECONOMICS: There are a lot of people who feel that the markets are in some sense bullying the Fed. They are trying to get the Fed to do their will. On the other hand, I think you get to a point where you have to get beyond that and you realize that maybe they were bullying me, but maybe it's also the right thing to do.

GURVEY: While the Fed chairman says economic reports, being backward looking are less valuable in times like these, the Fed will have several to consider between now and its meeting on September 18th, including employment, industrial production and retail sales. Scott Gurvey, NIGHTLY BUSINESS REPORT, New York.